Monetary Authority raises base rate 0.25pct

The Monetary Authority of Macau raised the bate rate of the discount window last week by 25 basis points to 1.75 percent, making it the fifth raise since December 2015.

As the pataca is linked to the Hong Kong dollar, the movements of policy rates in the two SARs must remain consistent in order to maintain the effective operation of the linked exchange rate, said the Authority in an explanatory statement.

As a result, the Monetary Authority followed the lead of its Hong Kong counterpart last week and raised the base rate by 25 basis points.

Meanwhile, since the Hong Kong dollar is linked to the US dollar under the linked exchange rate system, the rate hike action of Hong Kong was attributed to the decision of the U.S. Federal Reserve to raise the Feds fund rate on December 13.

“In recent months, money market rates in Macau have been trending up and pataca liquidity has been contracting.  The pressure of local banks to raise interest rates at the retail level has been accumulating owing to rising fund costs in the money market,” noted the Monetary Authority.

“The possibility of uplifting loan and deposit interest rates by Macao banks cannot be ruled out in the foreseeable future,” it cautioned.

The Authority also warned that the public ought to remain alert to continued change in local interest rates because of the “potentially enlarging volatility of the real estate market.” Higher base interest rates will mean an additional burden on mortgage loan repayments for many Macau homeowners.